State of North Carolina
Department of State Treasurer
State and Local Government Finance Division
and the Local Government Commission
RICHARD H. MOORE
TREASURER
ROBERT M. HIGH
DEPUTY TREASURER
MEMORANDUM # 946
DATE:
August 9, 2001
TO:
Officials of Local ABC Boards, Local Governments, and Certified Public
Accountants
FROM:
Guy Potts, Director
Audit/Pricing Division
North Carolina Alcoholic Beverage Control (ABC) Commission
T. Vance Holloman, Director
Fiscal Management Section
North Carolina Department of State Treasurer
SUBJECT:
Application of Governmental Accounting Standards Board Statement No. 34,
Basic Financial Statements-and Management’s Discussion and Analysis-for
State and Local Governments, to Local ABC Boards
The Governmental Accounting Standards Board (GASB) has issued Statement No. 34, Basic
Financial Statements - and Management’s Discussion and Analysis - for State and Local
Governments. The purpose of the Statement is to establish external financial reporting standards for
state and local governments changing governmental unit's financial statements to a format more
comparable to non-governmental entities. As public authorities, local ABC Boards are subject to
GASB Statement No. 34. Since local ABC Boards are engaged only in proprietary activities, there
are few required changes in the financial statements.
Implementation Dates
The requirements of this Statement will become effective in phases. For entities that are not
component units of another government, these phases are determined by the total revenues the
unit had in the first fiscal year ended after June 15, 1999. Revenues include operating and nonoperating revenues from enterprise fund types. Units with total revenues of $100 million or more are
in Phase 1. Units with total revenues equal to or in excess of $10 million but less than $100 million
are in Phase 2. Units with total revenues less than $10 million are in Phase 3.
325 North Salisbury Street, Raleigh, North Carolina 27603-1385
Telephone: (919) 807-2350 Fax: (919) 807-2352 Website: www.treasurer.state.nc.us
An Equal Opportunity/Affirmative Action Employer
Memorandum # 946
August 9, 2001
Page 2
Most local ABC Boards are component units of either a city or county. For component units
under GASB Statement No. 14, the implementation date for GASB Statement No. 34 is no later
than the fiscal year of implementation of their primary government, regardless of their
revenue amounts. Please refer to the attached phase listing to determine the implementation date for
your unit.
The Statement does allow a delayed implementation date for retroactive general infrastructure
reporting. Infrastructure of proprietary activities should be recorded under current generally
accepted accounting principles (GAAP). Since local ABC Boards engage in proprietary activities
only, this exception does not apply to local ABC Boards. Any assets that are not currently recorded,
such as parking lots, lighting, fencing, etc., should be reported in the current year as a prior period
adjustment for the correction of an error.
Financial Reporting Issues
As a public authority with proprietary activities only, the impact of GASB Statement No. 34 upon
ABC Boards will be minimal. The major changes will be:



Addition of the Management’s Discussion and Analysis (MD&A) as required supplementary
information.
Changes in the format and account titles in the financial statements.
Changes in the notes to the financial statements.
MD&A
The MD&A should introduce the financial statements and provide a clear and understandable
analysis of financial activities. The MD&A should be based upon facts or events that exist or have
occurred as of the date of the auditor’s report, rather than anticipated or possible events. MD&A
should consist of:
1. A short discussion of the financial statements.
2. Condensed financial information with current and prior year amounts for total assets,
liabilities, net assets, revenues, expenses, and other account balances that are significant in
explaining changes in the financial position and the results of operations for the unit.
3. A discussion of the unit’s overall financial position and results of operations, comparing
these results to those of the prior year. This discussion should cite reasons for significant
changes from the prior year.
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August 9, 2001
Page 3
4. A discussion of the financial position and results of operations for individual funds. This
should include reasons for significant changes from the prior year and restrictions on the
future use of the assets of those funds.
5. A discussion of significant debt and capital asset activity including commitments for capital
outlay and debt limits that may affect future financing.
6. Any other currently known facts, decisions or conditions that will impact the unit’s financial
position or results of operations.
The statement requires that all of these items be discussed and that no additional items can be added
that do not relate to items 1-6 above. If the financial statements present comparative data, then the
MD&A must present comparative data; however, the six requirements listed above only have to be
addressed for the current year information if prior year data is not presented. Since local ABC
Boards are currently using the full accrual basis of accounting for all transactions, there should be
few changes in the financial statements as a result of implementation of GASB Statement No. 34.
Therefore units should present comparative amounts and discuss variations from the prior fiscal year
in the MD&A
Proprietary Fund Financial Statements
The required financial statements for ABC Boards are as follows:
 Statement of net assets or balance sheet
 Statement of revenues, expenses and changes in net assets
 Statement of cash flows
These statements should be prepared using the full accrual basis of accounting that the ABC Boards
already use. In accordance with GASB Statement No. 20, all FASB Statements and Interpretations,
APB opinions, and ARB’s issued prior to November 30, 1989 that do not contradict GASB
pronouncements, should be followed. The units may elect to apply all of the pronouncements issued
after that date that do not contradict GASB pronouncements or none of the pronouncements.
The balance sheet or statement of net assets should classify assets and liabilities between current and
long-term amounts. Restricted assets should be reported on the balance sheet for assets whose use is
subject to restrictions imposed by external parties such as creditors, grantors, contributors or other
governments; or imposed by constitutional provisions or enabling legislation. Designations of net
assets should not be shown. Net assets should be divided into three categories:
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August 9, 2001
Page 4
1. Invested in capital assets, net of related debt-capital assets, net of depreciation, less debt on
those assets. Debt on unexpended proceeds would not be netted against assets, but would be
included in restricted net assets.
2. Restricted net assets-assets whose use is subject to constraints from external parties such as
creditors, grantors, contributors or other governments; or imposed by constitutional
provisions or enabling legislation.
3. Unrestricted net assets- net assets that do not meet the requirements of the other two
categories.
The statement of changes in net assets should distinguish operating and non-operating revenues and
expenses. Additions to permanent and term endowments should be shown on a separate line after
non-operating revenues and expenses. This should be followed by special items, extraordinary items
and transfers. The sum should be changes in net assets, which is added to or deducted from the
beginning balance to calculate ending net assets.
The direct method of presentation should be used in preparing the cash flow statement for
proprietary funds.
Notes to the Financial Statements
Local ABC Boards should make the following additional note disclosures in the unit’s summary of
significant accounting policies:
1. A description of the financial statements and their basis of accounting.
2. The policy regarding applicability of FASB statements issued after November 30, 1989.
3. The policy for capitalizing assets and estimating useful lives.
4. Policy for defining operating and non-operating revenues and expenses.
5. Policy for applying restricted or unrestricted assets when expenses payable from either are
incurred.
Notes about capital assets should be presented for major classes of assets and should include:
1. Beginning and ending balances, showing historical cost and accumulated depreciation.
2. Acquisitions and sales/dispositions.
3. Depreciation expenses for each function or segment.
Notes about long-term liabilities should include debt, such as bonds and leases, and other long-term
liabilities, such as compensated absences and claims and judgments. Disclosures should include:
1. Beginning and ending balances.
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August 9, 2001
Page 5
2. Increases and decreases.
3. The portion due within the next fiscal year.
Transition
Statement No. 34 requires a prior period adjustment to the earliest period presented for changes to
proprietary funds resulting from the implementation of the Statement. If adjustments to prior periods
are not practical, a cumulative adjustment to the beginning net assets for the initial year of
implementation is permitted. The notes to the financial statements should include disclosures about
the change. Since local ABC Boards have been using the full accrual basis of accounting, most units
should not have any prior period adjustments.
Units do not have to restate prior periods in order to provide the prior to current year comparisons
required in the MD&A. However, since local ABC Boards are using the full accrual basis of
accounting for all transactions, there should be few changes in the financial statements as a result of
the implementation of GASB Statement No. 34. Local ABC Boards should provide comparisons
between the current and prior years of key amounts for total proprietary funds and should discuss
those comparisons in the MD&A.
The staff of the Local Government Commission (LGC) and North Carolina ABC Commission will
work together to prepare illustrative financial statements for local ABC Boards that fulfill the
requirements of GASB Statement No. 34. We will also work with the North Carolina Association of
Certified Public Accountants, the North Carolina Government Finance Officers Association, the
North Carolina County Finance Officers Association and the Institute of Government to determine
the most efficient and effective way to implement Statement No. 34.
Please share your thoughts and concerns about the implementation of Statement 34 with members of
our staff. If you have any questions concerning this memorandum please call Sara Shippee of the
LGC staff at (919) 807-2386 or Guy Potts of the North Carolina ABC Commission at
(919)779-0700, extension 253 or email pottsg@ncabc.com. For questions on the listing of unit
implementation dates, contact Samantha Cox at (919) 807-2394.